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What Happens to Your Tax Debt in Bankruptcy?

To understand how your tax debt will be dealt with in a bankruptcy you first have to understand that there are two different ways to go about filing for bankruptcy. There is the Chapter 7 and the Chapter 13. Whichever one you are eligible for will determine how your tax debt is handled. 

There are specific rules that are applied regarding the wiping out of tax debt, and there are set criteria which has to be met in order for the tax debt to be discharged, or in other words you don't have to pay it.

It starts with determining that the tax debt has originated from income tax and is not a tax debt related to other income like the owing of payroll taxes. You have not been charged with fraud or tax avoidance. The tax debt cannot be a current tax debt, and it must be at least three years old. Your debt must relate to a tax return that was actually filed two years prior to your bankruptcy filing. This is really important that it has been classed as your filing and not a filing that was done by the IRS because you were late filing. The intricacies of this will depend on the laws related to it for your state.

You will also have to meet the criteria of the 240 day rule. This means the tax assessment must have been completed at least 240 days prior to your bankruptcy filings. There are some exemptions to this.

Being as the laws for wiping out tax debts can be very confusing and complex, it is important to speak to an experienced Indiana bankruptcy attorney regarding what can be expected in your bankruptcy, concerning your tax debt.

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Schwartz Bankruptcy Law Center

Office Locations:

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3339 Taylorsville Road
Louisville, KY 40205

Phone: 502-785-8549
Phone: 502-485-9200
Fax: 502-485-9220
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New Albany, Indiana 47150

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